The Parnassus Income Fund
- -------------------------
July 25, 1996
Dear Shareholder:
Here is your semiannual report covering the first half of 1996. Below
you'll find an analysis of each portfolio. As the portfolio manager for the
Balanced and Fixed-Income Portfolios, I wrote those sections. As portfolio
manager for the California Tax-Exempt Portfolio, David Pogran wrote that report.
Balanced Portfolio
- ------------------
As of June 30, 1996, the net asset value per share (NAV) of the Balanced
Portfolio was $19.71. Taking into account dividends paid, the total return for
the six months was 2.94%. This compares to a total return of 5.05% for the
average balanced fund according to Lipper Analytical Services. The reason we
underperformed the index is because the Balanced Portfolio is more
income-oriented than the average balanced fund; all of our stocks pay a healthy
dividend. Dividend-paying stocks have some of the characteristics of bonds so
that when interest rates go up, their principal value tends to go down.
During the first half of the year, interest rates climbed quite a bit. For
example, the 30-year Treasury bond went from 5.95% at the beginning of the year
to 6.89% as of June 30. This increase put pressure on bonds and dividend-paying
stocks. For example, while stocks in general as measured by the S&P 500 went up
10.10% during the last six months, the Dow Jones Utility Index went up only
0.45% (including dividends). This shows the effect that rising interest rates
have on dividend-paying stocks such as utilities.
For the 12-month period ending June 30, the Balanced Portfolio continued to
outperform the average balanced fund, gaining 16.41% compared to 15.52%. Below
is a table summarizing average annual total returns for the one and three-year
periods and for the life of the Portfolio.
<TABLE>
<CAPTION>
Average Annual
Balanced Portfolio Total Return
- ------------------ ------------
<S> <C>
One Year ..................................................16.41%
Three Years ............................................... 9.28%
Since Inception 9/1/92 ....................................13.21%
</TABLE>
Company Analyses
- ----------------
Although most of the bonds in the Portfolio dropped in value because of
rising interest rates, most of the stocks posted a gain. Four of them, however,
dropped somewhat. Jostens dropped 12.5% early in the year before we sold it. Our
average cost was $18.55 while our average selling price was $21.22 so we made a
modest profit over the holding period even though the stock price declined this
year.
Connecticut Energy dropped 14.6% during the first half, going from $22.25
to $19.00. Besides being hurt by the rising interest rates that hit all utility
stocks, deregulation in the natural gas distribution industry clouded the
company's prospects. Commercial and industrial customers in Connecticut Energy's
territory are now free to buy their gas from competitors.
Brooklyn Union Gas dropped 6.8% during the first half as its stock went
from $29.25 to $27.25. New York became the first State to allow residential
customers to purchase natural gas from a supplier other than the local utility.
So people in Brooklyn can buy gas from another supplier and have Brooklyn Union
deliver it through its gas lines. This has meant uncertainty for Brooklyn Union
Gas Company.
Great Western Financial lost 5.9% since the first of the year as its stock
went from $25.38 to $23.88. Rising interest rates hurt housing lenders because
it reduces loan volume and drives up the cost of funds.
Liz Claiborne was our biggest gainer during the first half of the year as
its stock climbed 25.9%, going from $27.50 to $34.63. The company has increased
earnings through better cost control and its clothes are selling much better
because of improved designs. The general climate for retailing of women's
clothes has also improved. Unfortunately, we only owned 7,000 shares of Liz
Claiborne stock.
Philadelphia Suburban Water Company increased 19.3% as its stock climbed
from $20.75 to $24.75. The company raised its dividend and achieved record
revenue and earnings by growing its customer base through acquisition of other
water companies.
The stock of the Deluxe Company rose from $30.18 to $35.50 from the time we
purchased it early this year to the end of the first half. The gain of 17.6%
came because streamlining operations sparked new investor interest in this
check-printing company.
The Sun Company saw its stock go up 11.0% as it rose from $27.38 to $30.38.
Rising oil prices and increased refining margins helped the company.
J.C. Penney's stock increased 10.2% as it went from $47.63 to $52.50. A
pick-up in consumer spending helped revive most retail stocks this year.
We will not have a separate discussion of the fixed-income portion of the
Balanced Portfolio. It comprises only 34% of total assets and the composition is
very similar to the Fixed-Income Portfolio. To get an idea of what happened, see
the discussion in the Fixed-Income Portfolio section.
Company Notes
- -------------
On May 21, Washington Water Power received the "Best Large Business Waste
Reduction and Recycling Program Award" from the Washington State Department of
Ecology (DOE). "What we found so impressive about Washington Water Power's
program is its depth and breadth," said Pete Christiansen, DOE planner. "The
company is not only doing all types of recycling at the office desk, but also
has a very aggressive program in place out in the field and yards." The company
was also cited for its advanced tracking mechanisms, its education program and
community cooperation. In 1995, WWP recycled more than 60% of its total waste
output.
Merck & Co. won marketing approval on March 13 from the FDA for its AIDS
drug, Crixivan--just 42 days after the application was filed. Crixivan was
approved on an accelerated basis which requires Merck to conduct more studies to
confirm its expected benefits. Clinical trials showed that Crixivan, when
combined with two other approved AIDS drugs, can reduce the HIV virus to below
detectable levels in up to 85 percent of patients tested. While the drug is
killing the virus, the patient's immune system has time to strengthen and
generate more immune cells to fight the disease once it regenerates. Additional
studies underway will show if Crixivan can slow the disease and prolong life.
The Los Angeles County Board of Supervisors recently honored Great Western
Financial Corporation as a "Family Friendly Employer, 1996." Great Western
provides a range of family-oriented services from child care to educational
workshops. At its headquarters, the company has a 16,000 square foot
professionally-staffed child care center, a fitness center, a mothers' lactation
room and free seminars on parenting, health, pre-natal care and workplace
issues.
J.C. Penney has a new policy of suspending business with suppliers who
violate state or federal labor laws or those of a foreign country. The company
recently suspended business with two apparel suppliers cited by the Department
of Labor for minimum wage and work-hour rules violations. J.C. Penney will not
resume business with a violator until an adequate monitoring system has been
instituted.
Fixed-Income Portfolio
- ----------------------
As of June 30, 1996, the net asset value per share (NAV) of the
Fixed-Income Portfolio was $15.14. Taking into account dividends paid, total
return for the six months ending June 30 was a loss of 0.85%. This compares to a
loss of 1.88% for the Lehman Government/Corporate Bond Index and a loss of 2.32%
for the average A-rated bond fund according to Lipper Analytical Services. So we
beat the index by 1.03% and the average A-rated bond fund by 1.47%. For the six
months, we placed 11th out of 119 A-rated bond funds followed by Lipper.
For the 12 months ending June 30, the Fixed-Income Portfolio had a total
return of 4.92% compared to 4.06% for the average A-rated bond fund and 4.66%
for the Lehman Government/Corporate Bond Index. For the 12-month period, the
Fixed-Income Portfolio placed 18th out of the 116 A-rated bond funds followed by
Lipper. Below is a table summarizing average annual total returns for the one
and three-year periods and for the life of the Portfolio.
<TABLE>
<CAPTION>
Average Annual
Fixed-Income Portfolio Total Return
- ---------------------- ------------
<S> <C>
One Year ...................................................4.92%
Three Years ................................................5.00%
Since Inception 9/1/92 .....................................6.64%
</TABLE>
Analysis
- --------
Although we didn't make any money for the first half of the year, we
certainly did keep our loss to a minimum and we beat the Lehman
Government/Corporate Bond Index as well as the average A-rated bond fund. The
reason the bond market produced a negative return for the year's first half was
because of a large gain in interest rates. The 30-year Treasury bond went from
5.95% at the beginning of the year to 6.89% by June 30 for an increase of almost
1%. That's a very substantial rise in rates.
There are several reasons why we were able to beat the bond market, but the
most important one was because of the way we managed our maturities. Veteran
shareholders will remember how the Portfolio got hurt in 1994 when interest
rates spiked upward during the year. At that time, most of our securities had
maturities substantially greater than ten years. When rates turn up, the bonds
with the longest maturities go down the most. For that reason, we were very
vulnerable in 1994.
Interest rates came down in 1995 and the value of the Portfolio climbed
quite a bit. In late 1995, I decided to give our portfolio some protection by
shortening our maturities. We filled most of the Portfolio with 10-year maturity
bonds. By reducing our average maturity, we not only protected ourselves from
upward interest rate spikes, but we also gave up very little in yield since the
ten-year Treasury was yielding only around 0.25% less than the 30-year Treasury.
Since this "spread" was so minimal, there was no reason to go out any longer.
(Sometimes, the "spread" is much wider and it may make sense to lengthen
maturities to get a higher yield.)
Something else that helped us was the absence of CMO's in the portfolio.
CMO stands for collateralized mortgage obligations and they are pools of
mortgages turned into securities. We liked them from a social standpoint because
they are used to finance housing, but they did not work for us from an
investment standpoint. Because CMO's have no fixed maturity, but rather are
dependent on the speed with which homeowners pay off their mortgages, the
estimated life of these securities tends to lengthen during periods of rising
interest rates and decline during periods of falling interest rates. Because of
this, the value of CMO's fall more than regular bonds during periods of rising
interest rates. This hurt the portfolio quite a bit in 1994. We sold off
virtually all the CMO's during 1995 so their absence helped our return in 1996.
Another thing that helped our return was a high cash position at the
beginning of the year. Since interest rates were fairly low then, I decided not
to put all our cash into longer-term bonds. As interest rates increased during
the year, we bought more ten-year bonds and this helped boost our return.
Finally, having good credit quality also helped our return. Since the
Portfolio invests only in investment grade securities and we avoid "junk bonds",
there is very little danger of our securities going into foreclosure. This helps
our return and protects the value of our bonds -- especially during times of
rising interest rates like the first half of 1996.
At the present time, we think interest rates are fairly high so the
Fixed-Income Portfolio is almost fully invested. We have less than 2% of our
assets in cash. Since inflation appears to be under control, we don't think
interest rates will go too much higher. This strategy should provide us with a
good total return.
We won't, however, increase our maturity. New investments will have a
maximum maturity of about ten years so the Portfolio should have an average life
of less than ten years. There is not enough extra yield to justify going out
much longer than ten years. This maturity policy should give us some protection
should interest rates surprise us and go up even higher.
If interest rates go down substantially, we might think about increasing
the amount of cash in the Portfolio. We would also consider decreasing the
maturities of our bonds even below current levels.
I am happy that we were able to protect the assets of our shareholders
during a difficult period.
Yours truly,
Jerome L. Dodson
President
California Tax-Exempt Portfolio
- -------------------------------
July 25, 1996
Dear Shareholder:
As of June 30, 1996, the net asset value (NAV) of the California Tax-Exempt
Portfolio was $15.58. For the first half of 1996, the total return for the
Portfolio was a loss of 0.55%. In comparison, the Lehman Municipal Bond Index
lost 0.45% and the average California municipal bond fund lost 1.39% during the
same period.
For the last twelve months, the Portfolio's return of 7.16% compares
favorably to the Lehman Index's 6.64% return and to the average California bond
fund's 6.25% return. The Portfolio's three-year annualized return, 5.11%, placed
it sixth among 62 California bond funds tracked by Lipper Analytical Services.
We substantially outperformed the three-year annualized return of 4.24% for the
average California bond fund. Below is a table that summarizes the average
annual returns for the one and three-year periods and for the life of the
Portfolio.
<TABLE>
<CAPTION>
Average Annual
California Tax-Exempt Portfolio Total Return
- ------------------------------- ------------
<S> <C>
One Year ...................................................7.16%
Three Years ................................................5.11%
Since Inception 9/1/92 .....................................6.44%
</TABLE>
Analysis
- --------
Rising interest rates reduced the value of fixed-income securities during
the first half of 1996. At the very beginning of the year, concern that the
economy was slowing prompted the Federal Reserve to lower their benchmark
Federal Funds rate 0.25% to 5.25%. Soon afterwards, concerns over economic
slowing changed into fears that the economy would overheat. Economic reports
indicated stronger growth. Interest rates jumped since stronger growth leads to
inflation fears.
The Portfolio strategy of targeting average maturity at 15 years or less
helped us limit our losses in this rising interest rate environment. A 15-year
bond has 96% of the yield of a 30-year bond, but it is not as sensitive to
interest rate changes. Although some funds go for the maximum yield with less
regard for interest rate risk, I always seek a balance between the search for
attractive yields and sensitivity to interest rate fluctuations.
In 1996, California municipal bonds continued to outperform municipals
nationwide. California state general obligation (G.O.) bonds are currently rated
A by the credit rating agencies. However, California's on-going economic
recovery is boosting the market's perception of the state's creditworthiness.
During the first half of 1996, yields on California G.O.'s improved to the point
that they have almost the same yield as higher rated AA G.O. bonds. The market
typically anticipates changes in credit ratings, so it looks like the state's
credit ratings could be upgraded soon.
Municipal bonds did not lose as much value as taxable bonds in the first
half. The yield on a 30-year Treasury bond jumped almost a full percent during
the first six months of 1996 going from 5.95% to 6.89%. In contrast, the yield
on a 30-year AAA muni bond only went up about a half of one percent, from 5.28%
to 5.77%. At the end of 1995, many bond buyers were worried that enactment of
flat tax proposals might lower the value of tax-exempt bonds. Of course, those
concerns immediately lowered municipal bond values and increased yields. In our
1995 annual report, I explained that flat tax plans are not likely to be enacted
any time soon, if ever. During 1996, as anxiety over flat tax enactment faded,
municipals made up some lost ground and the relationship of tax-exempt yields to
taxable yields approached more normal levels.
Even though this relationship between municipal yields and taxable yields
is closer to normal than it was at the end of 1995, the Portfolio still offers
an attractive tax-exempt yield for California residents. The 30-day yield for
June was 5.27%. A single individual with taxable income between $25,083 and
$31,700 would have to earn 7.96% on a taxable investment to equal the
Portfolio's yield after taxes.
Social Aspects of Redevelopment Bonds
- -------------------------------------
Discussion of yields and returns is mandatory for a semiannual report. All
the same, I suspect many of our investors would like to read about how one type
of California municipal bonds, "redevelopment" bonds, help meet some of the
positive social investment goals of the Portfolio.
Careful readers of our financials will notice several of these
redevelopment bonds in the Portfolio. Generally, these bonds finance fixing up
depressed or rundown urban areas. Redevelopment bonds are typically structured
as "tax allocation" bonds. The pre-redevelopment property assessment of the
entire redevelopment area is used as the base assessment. Any increases to this
base assessment that take place after the redevelopment begins become the
incremental assessment. Taxes that are paid on the base assessment go to the
county tax collector as usual. However, taxes that are paid on the incremental
property assessment are allocated to the redevelopment agency. These funds pay
back bondholders.
These bonds have been issued in California for decades, but in 1977 a major
change in redevelopment law was enacted: 20% of the tax increment must be used
to improve, increase or preserve the community's supply of low and moderate
income housing. From 1987 to 1994, more than 50,000 units of housing were built
or rehabbed by redevelopment agencies using the 20% housing set-aside funds.
These bonds can serve two positive social purposes -- preventing and correcting
urban blight as well as providing low and moderate income housing.
We own bonds issued by the Los Angeles Community Redevelopment Agency used
to fund the Hollywood Redevelopment Project. Concern about decline and physical
deterioration in the historic central Hollywood area prompted the city council
to start the project.
Besides various commercial developments designed to make the area more
vital and attractive to businesses and tourism, this project has focused on
housing, social needs and historic preservation of this unique community. One
twenty-five unit, very low to moderate income housing project incorporated the
rehabilitation of a historic house with the addition of architecturally
compatible family housing. Redevelopment is adding 543 units of affordable
senior housing to the area through four different housing projects.
To help meet important social needs in the neighborhood, the Agency has
provided loans to eligible non-profits, including the Los Angeles Gay and
Lesbian Community Services Center, the Los Angeles Free Clinic and the Los
Angeles Youth Network. Additionally, the Agency is helping to preserve buildings
designated as historical by offering matching commercial rehabilitation loans.
Admittedly, not all redevelopment projects are managed as progressively as
the Hollywood project. There have been problems with some agencies not using
their housing set-aside funds. We research a redevelopment agency's projects and
housing fund status before investing in them, so that your money is invested in
redevelopment projects that are addressing housing as well as urban renewal.
Outlook and Strategy
- --------------------
Although growth has picked up in the second quarter, there is very little
evidence that inflation will follow. Current high interest rates should slow
growth in the second half of the year. As growth moderates, and inflation
continues low, I would expect interest rates to drop somewhat by the end of the
year. Longer term, most experts expect moderate growth and low inflation to
continue for several years.
Investment strategy for the Portfolio will remain unchanged. Buying
municipal bonds with fifteen-year maturities still provides the best value. The
historical returns of the Portfolio show that discipline and attention to value
can produce good investment results.
Thank you for investing with us. I hope that our continued attention to
value will maintain and improve our good record.
Yours truly,
David Pogran
Portfolio Manager
<TABLE>
Balanced Portfolio
- ------------------
<CAPTION>
Portfolio of Investments by Industry Classification, June 30, 1996 (unaudited)
Percent of
Shares Common Stocks Net Assets Market Value
- ----------------------------------------------------------------
<S> <C> <C> <C>
APPLIANCES
15,000 Maytag Corporation 1.0% $ 313,125
APPAREL
7,000 Liz Claiborne 0.8% 242,375
BANKING
10,000 Great Western
Financial Corporation 238,750
35,000 H.F. Ahmanson & Company 945,000
Total 3.9% 1,183,750
ELECTRIC UTILITIES
34,000 CILCORP 1,453,500
35,000 Idaho Power 1,089,375
66,000 LG & E Energy Corporation 1,509,750
80,000 Washington Water Power 1,490,000
Total 18.5% 5,542,625
NATURAL GAS
15,000 Brooklyn Union Gas 408,750
36,200 Connecticut Energy 687,800
55,000 ONEOK 1,375,000
45,000 People's Energy 1,507,500
70,000 Washington Gas Light
Company 1,540,000
Total 18.4% 5,519,050
PETROLEUM REFINING
& MARKETING
45,000 Sun Company 4.6% 1,366,875
PHARMACEUTICALS
7,000 Merck & Company 1.5% 452,375
PRINTING
45,000 Deluxe Corporation 5.3% 1,597,500
RETAIL
30,000 J.C. Penney Company 5.2% 1,575,000
WATER UTILITY
45,000 Philadelphia Suburban 3.7% 1,113,750
Total Common Stocks 62.9% 18,906,425
</TABLE>
<TABLE>
<CAPTION>
Principal Percent of
Amount Corporate Bonds Net Assets Market Value
-----------------------------------------------------------
<S> <C> <C>
AIR TRANSPORT
$330,000 Delta Airlines
9.750%, due 05/15/21 $ 377,952
28,935 Delta Airlines
8.540%, due 01/02/07 29,838
22,592 Delta Airlines
8.540%, due 01/02/07 23,449
100,000 Delta Airlines
10.375%, due 02/01/11 119,071
40,000 Delta Airlines
9.250%, due 03/15/22 44,085
150,000 Federal Express
9.650%, due 06/15/12 173,529
20,000 Southwest Airlines
7.875%, due 09/01/07 20,408
Total 2.5% 788,332
COMPUTERS
350,000 Digital Equipment
Corporation
7.750%, due 04/01/23 1.1% 320,604
FOOD-PROCESSING
650,000 Quaker Oats Company
9.280%, due 12/08/09 2.5% 742,469
HOME APPLIANCES
122,000 Whirlpool
9.100%, due 02/01/08 0.5% 137,744
INSURANCE
950,000 Aetna Life and Casualty
6.750%, due 09/15/13 2.9% 860,254
PUBLISHING
220,000 Knight-Ridder
9.875%, due 04/15/09 0.9% 266,145
RETAIL
605,000 Dayton Hudson
9.625%, due 02/01/08 692,192
25,000 Dayton Hudson
8.500%, due 12/01/22 25,470
114,000 Dayton Hudson
7.875%, due 06/15/23 108,548
550,000 J.C. Penney Company
7.125%, due 11/15/23 511,071
350,000 Reebok International
6.750%, due 09/15/05 330,978
Total 5.6% 1,668,259
TELECOMMUNICATIONS
350,000 U.S. West Capital Funding
6.350%, due 02/06/08 1.1% 318,714
Total Corporate Bonds 17.1% 5,102,521
</TABLE>
<TABLE>
<CAPTION>
U.S. Government
Agency Bonds
<S> <C> <C>
------------
200,000 Federal Farm Credit Bank
5.810%, due 11/10/03 187,870
300,000 Federal Home Loan Bank
5.850%, due 12/15/03 282,591
1,000,000 Federal Home Loan Bank
6.840%, due 05/01/06 988,750
150,000 Federal Home Loan Bank
8.170%, due 12/16/04 161,675
1,000,000 Federal Home Loan
Mortgage Corporation
5.825%, due 02/06/06 918,850
1,150,000 Federal National
Mortgage Association
6.770%, due 09/01/05 1,128,586
1,000,000 Federal National
Mortgage Association
5.800%, due 02/22/06 916,890
Total U.S. Government
Agency Bonds 15.2% 4,585,212
</TABLE>
<TABLE>
<CAPTION>
Principal Community Percent of
Amount Development Loans Net Assets Market Value
<S> <C> <C> <C>
- ------ ----------------- ---------- ------------
$100,000 Boston Community
Loan Fund $100,000
100,000 Institute for Community
Economics Loan Fund 100,000
100,000 Low Income Housing
Fund 100,000
Total Community
Development Loans 1.0% 300,000
Total Investment
in Securities
(Cost $26,814,273) 96.2% 28,894,158
</TABLE>
<TABLE>
<CAPTION>
Percent of
Short-Term Investments Net Assets Market Value
---------------------- ---------- ------------
<S> <C> <C>
Union Bank of California
Money Market Fund,
variable rate - 4.680% 333,469
Goldman Sachs
Government
Portfolio - 5.000% 205,241
Goldman Sachs
Treasury Portfolio - 5.000% 235,540
Albina Community Bank
5.000% 100,000
Total Short-Term
Investments
(Cost $874,250) 2.9% 874,250
Total Investments 99.1% 29,768,408
Other Assets and
Liabilities - Net 0.9% 259,273
Total Net Assets 100.0% $30,027,681
</TABLE>
<TABLE>
Balanced Portfolio
- ------------------
<CAPTION>
Statement of Assets and Liabilities
June 30, 1996 (unaudited)
<S> <C>
Assets:
Investments in securities, at market value
(identified cost $26,814,273) (Note 1) $ 28,894,158
Temporary investments in short-term securities
(at cost, which approximates market) 874,250
Cash 7,546
Receivables:
Dividends and interest 248,093
Capital shares sold 42,337
Other assets 13,799
Total assets 30,080,183
Liabilities:
Capital shares redeemed 21,225
Dividends Payable 30,635
Accrued expenses 642
Total liabilities 52,502
Net Assets (equivalent to $19.71
per share based on 1,523,125.808
shares of capital stock outstanding) $ 30,027,681
Net assets consist of:
Distributions in excess of net investment income $ (46,087)
Unrealized appreciation on investments 2,079,885
Accumulated net realized gain 1,383,948
Capital paid-in 26,609,935
Total Net Assets $ 30,027,681
Computation of net asset value and
offering price per share:
Net asset value and offering price per share
($30,027,681 divided by 1,523,125.808 shares) $ 19.71
</TABLE>
<TABLE>
Balanced Portfolio
- ------------------
<CAPTION>
Statement of Operations
six months ended June 30, 1996 (unaudited)
<S> <C>
Investment Income:
Dividends $ 402,247
Interest 323,865
Total investment income 726,112
Expenses (Note 5):
Investment advisory fees 206,673
Transfer agent fees 40,857
Fund administration expense 17,800
Reports to shareholders 12,031
Registration fees and expenses 8,744
Professional fees 7,241
Custody fees 6,036
Trustee fees and expenses 3,728
Other expenses 626
Fees waived by Parnassus Investments (Note 5) (196,867)
Total expenses 106,869
Net Investment Income 619,243
Realized and Unrealized Gain (Loss)
on Investments:
Realized gain from security transactions:
Proceeds from sales 10,138,305
Cost of securities sold (8,758,666)
Net realized gain 1,379,639
Unrealized appreciation (depreciation)
of investments:
Beginning of year 3,196,942
End of period June 30, 1996 2,079,885
Unrealized depreciation
during the year (1,117,057)
Net Realized and Unrealized Gain
on Investments 262,582
Net Increase in Net Assets Resulting
from Operations $ 881,825
</TABLE>
<TABLE>
Balanced Portfolio
- ------------------
<CAPTION>
Statements of Changes in Net Assets
six months ended June 30, 1996 (unaudited)
and year ended December 31, 1995
June 30, 1996 1995
<S> <C> <C>
------------- ----
From Operations:
Net investment income $ 619,243 $ 1,028,123
Net realized gain from
security transactions 1,379,639 162,502
Net unrealized appreciation
(depreciation) during
the period (1,117,057) 4,491,653
Increase in net assets
derived from operations 881,825 5,682,278
Dividends to shareholders:
From net investment income (649,286) (1,050,322)
From realized capital gains 0 (91,363)
Increase in Net Assets from
Capital Share Transactions 3,015,885 5,151,794
Increase in Net Assets 3,248,424 9,692,387
Net Assets:
Beginning of period 26,779,257 17,086,870
End of period
(including distributions in
excess of net investment
income of $46,087 in 1996
and $16,044 in 1995) $ 30,027,681 $ 26,779,257
</TABLE>
<TABLE>
Fixed-Income Portfolio
- ----------------------
<CAPTION>
Portfolio of Investments by Industry Classification, June 30, 1996 (unaudited)
Principal Percent of
Amount Corporate Bonds Net Assets Market Value
<S> <C> <C> <C>
- ----------------------------------------------------------------
AIR TRANSPORT
$ 71,000 Delta Airlines
Debentures, 10.375%,
due 02/01/11 $ 84,540
40,000 Delta Airlines
Debentures, 9.250%,
due 03/15/22 44,085
174,000 Delta Airlines
Debentures, 9.750%,
due 05/15/21 199,284
63,295 Delta Airlines
Notes 8.540%,
due 01/02/07 65,271
147,000 Federal Express
Debentures, 9.650%,
due 06/15/12 170,058
20,000 Federal Express
Senior Notes, 10.000%,
due 04/15/99 21,558
Total 8.7% 584,796
COMPUTERS
25,000 Digital Equipment
Corporation
Notes, 7.125%,
due 10/15/02 24,292
130,000 Digital Equipment
Corporation
Notes, 8.625%,
due 11/01/12 133,105
178,000 Digital Equipment
Corporation
Notes, 7.750%,
due 04/01/23 163,050
Total 4.8% 320,447
FOOD-PROCESSING
350,000 Quaker Oats Company
Notes, 9.280%,
due 12/08/09 6.0% 399,791
HOME APPLIANCES
300,000 Whirlpool
Debentures, 9.100%,
due 02/01/08 5.1% 338,715
INSURANCE
350,000 Aetna Life and Casualty
Notes, 6.750%,
due 09/15/13 316,935
31,000 Aetna Life and Casualty
Notes, 8.000%,
due 01/15/16 30,232
Total 5.2% 347,167
PUBLISHING
80,000 Knight-Ridder
Notes, 9.875%,
due 04/15/09 1.4% 96,780
RETAIL
60,000 Dayton Hudson
Debentures, 9.250%,
due 11/15/16 62,687
90,000 Dayton Hudson
Debentures, 9.625%,
due 02/01/08 102,971
100,000 Dayton Hudson
Notes, 7.875%,
due 06/15/23 95,218
65,000 Dayton Hudson
Notes, 8.500%,
due 12/01/22 66,221
10,000 Dayton Hudson
Debentures, 9.500%,
due 10/15/16 10,487
325,000 J.C. Penney Company
Debentures, 7.125%,
due 11/15/23 301,997
200,000 The Limited
Notes, 7.500%,
due 03/15/23 171,540
350,000 Reebok International
Debentures, 6.750%,
due 09/15/05 330,977
Total 17.1% 1,142,098
TELECOMMUNICATIONS
350,000 U.S. West Capital Funding
Notes, 6.350%,
due 02/06/08 4.8% $ 318,714
Total Corporate
Bonds 53.1% $3,548,508
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Percent of
Agency Securities Net Assets Market Value
<S> <C> <C> <C>
---------------------------------------------------
400,000 Federal Home Loan
Mortgage Corporation
CMO 1530-N
7.000%, due 06/15/23 376,860
500,000 Federal Home Loan Bank
6.840%, due 05/01/06 494,375
300,000 Federal National
Mortgage Association
6.720%, due 08/01/05 293,559
850,000 Federal National
Mortgage Association
6.770%, due 09/01/05 834,173
500,000 Federal National
Mortgage Association
5.800%, due 02/22/06 458,445
450,000 Federal National
Mortgage Association
7.350%, due 03/28/05 460,575
Total U.S. Government
Agency Securities 43.7% 2,917,987
Total Investments
in Securities
(Cost $6,519,543) 96.8% 6,466,495
</TABLE>
<TABLE>
<CAPTION>
Percent of
Short-Term Investments Net Assets Market Value
<S> <C> <C>
---------------------------------------------------------------
Union Bank of California
Money Market Fund,
variable rate - 4.680% $24,889
Goldman Sachs
Government Portfolio -
5.000% 52,871
Goldman Sachs
Treasury Portfolio -
5.000% 12,782
Total Short-Term
Investments
(Cost $90,542) 1.4% 90,542
Total Investments 98.2% 6,557,037
Other Assets and
Liabilities - Net 1.8% 119,525
Total Net Assets 100.0% $ 6,676,562
</TABLE>
<TABLE>
Fixed-Income Portfolio
- ----------------------
<CAPTION>
Statement of Assets and Liabilities
June 30, 1996 (unaudited)
<S> <C>
Assets:
Investments in securities, at market value
(identified cost $6,519,543) (Note 1) $ 6,466,495
Temporary investments in short-term securities
(at cost, which approximates market) 90,542
Cash 42,838
Receivables:
Interest 128,059
Capital shares sold 2,802
Other assets 5,215
Total assets 6,735,951
Liabilities:
Accrued expenses 59,389
Total liabilities 59,389
Net Assets (equivalent to $15.14
per share based on 440,877.403
shares of capital stock outstanding) $ 6,676,562
Net assets consist of:
Distributions in excess of net investment income $ (4,097)
Unrealized depreciation on investments (53,048)
Accumulated net realized loss (68,623)
Capital paid-in 6,802,330
Total Net Assets $ 6,676,562
Computation of net asset value and offering price per share:
Net asset value and offering price per share
($6,676,562 divided by 440,877.403 shares) $ 15.14
</TABLE>
<TABLE>
Fixed-Income Portfolio
- ----------------------
<CAPTION>
Statement of Operations
six months ended June 30, 1996 (unaudited)
<S> <C>
Investment Income:
Interest $ 221,528
Total investment income 221,528
Expenses (Note 5):
Investment advisory fees 32,748
Transfer agent fees 11,141
Fund administration expense 4,171
Reports to shareholders 3,151
Registration fees and expenses 6,840
Professional fees 2,465
Custody fees 316
Trustee fees and expenses 896
Other expenses (311)
Fees waived by Parnassus Investments (Note 5) (32,748)
Total expenses 28,669
Net Investment Income 192,859
Realized and Unrealized
Gain (Loss) on Investments:
Realized loss from security transactions:
Proceeds from sales 102,672
Cost of securities sold (101,863)
Net realized gain 809
Unrealized appreciation (depreciation)
of investments:
Beginning of year 193,565
End of period June 30, 1996 (53,048)
Unrealized depreciation
during the year (246,613)
Net Realized and Unrealized
Loss on Investments (245,804)
Net Decrease in Net Assets Resulting
from Operations $ (52,945)
</TABLE>
<TABLE>
Fixed-Income Portfolio
- ----------------------
<CAPTION>
Statements of Changes in Net Assets
six months ended June 30, 1996 (unaudited)
and year ended December 31, 1995
<S> <C> <C>
June 30, 1996 1995
------------- ----
From Operations:
Net investment income $ 192,859 $ 335,834
Net realized gain (loss)
from security transactions 809 (65,106)
Net unrealized appreciation
(depreciation) during
the period (246,613) 746,767
Increase (decrease) in
net assets derived from
operations (52,945) 1,017,495
Dividends to shareholders:
From net investment income (193,750) (338,316)
Increase in Net Assets from
Capital Share Transactions 338,688 1,360,035
Increase in Net Assets 91,993 2,039,214
Net Assets:
Beginning of period 6,584,569 4,545,355
End of period
(including distributions in
excess of net investment
income of $4,097 in 1996
and $3,206 in 1995) $ 6,676,562 $ 6,584,569
</TABLE>
<TABLE>
California Tax-Exempt Portfolio
- -------------------------------
<CAPTION>
Portfolio of Investments by Industry Classification, June 30, 1996 (unaudited)
Principal Percent of
Amount Municipal Bonds Net Assets Market Value
<S> <C> <C> <C>
- ----------------------------------------------------------------------
EDUCATION
$ 50,000 State of California
6.000%, due 01/01/21 $ 50,205
170,000 State of California
6.125%, due 10/01/11 179,685
250,000 California Education
Facilities - California
Institute of Technology
6.000%, due 01/01/21 251,103
110,000 California Public Works -
University of California
at San Diego Facilities
7.375%, due 04/01/06 116,679
100,000 California Public Works -
Community College Projects
5.500%, due 12/01/06 100,068
130,000 California Public Works -
University of California
5.400%, due 06/01/08 127,976
175,000 California Public Works -
California State University
6.200%, due 10/01/08 180,472
100,000 Franklin-McKinsey
School District
5.600%, due 07/01/07 101,732
120,000 Fresno Unified
School District
5.300%, due 10/01/07 115,674
100,000 Kern High School District
5.600%, due 08/01/13 100,487
100,000 Los Angeles Municipal
Improvement -
Central Library Projects
5.200%, due 06/01/07 96,191
250,000 Murrieta Valley Unified
School District
5.500%, due 09/01/10 245,758
100,000 Natomas Unified
School District
5.750%, due 09/01/13 100,309
110,000 Pasadena Recreational/
Library Improvements
5.750%, due 01/01/13 106,975
130,000 Pomona Unified
School District
5.500%, due 08/01/11 129,136
130,000 San Francisco Unified
School District
6.200%, due 06/15/11 134,742
110,000 Santa Monica Unified
School District
5.400%, due 08/01/11 107,063
Total 43.4% 2,244,255
HEALTH CARE
60,000 California Health Facilities-
Feedback Foundation
6.500%, due 12/01/22 1.2% 61,342
PUBLIC TRANSPORTATION
200,000 Los Angeles County
Transportation Commission
6.250%, due 07/01/16 200,022
70,000 City of Sacramento -
Light Rail
6.000%, due 07/01/12 70,417
110,000 San Diego
Mass Transit Authority
5.000%, due 06/01/07 107,507
125,000 San Francisco
Bay Area Rapid Transit
5.650%, due 07/01/10 125,616
Total 9.7% 503,562
HOUSING
205,000 Belmont Redevelopment
Agency
6.400%, due 08/01/09 211,910
55,000 California Housing Finance -
Multi-Family
6.750%, due 02/01/09 55,028
100,000 Glendale Redevelopment
Agency
5.500%, due 12/01/12 98,037
50,000 Los Angeles Community
Redevelopment
6.000%, due 07/01/17 50,363
175,000 San Jose Redevelopment
Agency
6.000%, due 08/01/15 182,819
Total 11.5% 598,157
INFRASTRUCTURE
IMPROVEMENTS
90,000 East Bay Municipal
Utility District
6.000%, due 06/01/20 90,361
200,000 Los Angeles
Wastewater System
5.500%, due 06/01/12 196,148
200,000 Pomona Public Financing
Authority
6.000%, due 10/01/06 209,900
150,000 San Francisco Public
Safety Improvement
5.750%, due 06/15/12 150,483
Total 12.5% 646,892
ENVIRONMENT
80,000 Burbank Waste Disposal
5.300%, due 05/01/09 78,426
75,000 California Pollution
Control-North County
Recycling Center
6.750%, due 07/01/17 75,895
125,000 California Public Works -
Energy Efficiency
5.250%, due 05/01/08 123,313
150,000 Los Angeles City
General Obligation
5.250%, due 09/01/11 142,753
235,000 Northern California
Geothermal Project
5.800%, due 07/01/09 244,481
50,000 East Bay Regional Park
5.750%, due 09/01/12 49,813
50,000 East Bay Regional Park
6.300%, due 09/01/09 52,506
125,000 Los Angeles City
Public Works - Parks
6.100%, due 10/01/09 128,929
35,000 Midpeninsula Regional
Open Space District
6.250%, due 07/01/08 36,916
Total 18.0% 933,032
Total Investments
in Securities
(Cost $4,925,584) 96.3% $4,987,240
Short-Term Investments
Highmark California
Tax-Exempt Fund,
variable rate - 2.600%
(Cost $111,176) 2.1% 111,176
Total Investments 98.4% 5,098,416
Other Assets and
Liabilities - Net 1.6% 84,449
Total Net Assets 100.0% $5,182,865
</TABLE>
<TABLE>
California Tax-Exempt Portfolio
- -------------------------------
<CAPTION>
Statement of Assets and Liabilities
June 30, 1996 (unaudited)
<S> <C>
Assets:
Investments in securities, at market value
(identified cost $4,925,584) (Note 1) $ 4,987,240
Temporary investments in short-term securities
(at cost, which approximates market) 111,176
Receivables:
Interest 87,035
Other assets 3,232
Total assets 5,188,683
Liabilities:
Dividends payable 5,655
Accrued expenses 163
Total liabilities 5,818
Net Assets (equivalent to $15.58
per share based on 332,592.645
shares of capital stock outstanding) $ 5,182,865
Net assets consist of:
Distributions in excess of
net investment income $ (3,371)
Unrealized appreciation on investments 61,656
Accumulated net realized loss (33,385)
Capital paid-in 5,157,965
Total Net Assets $ 5,182,865
Computation of net asset value and
offering price per share:
Net asset value and offering price per share
($5,182,865 divided by 332,592.645 shares) $ 15.58
</TABLE>
<TABLE>
California Tax-Exempt Portfolio
- -------------------------------
<CAPTION>
Statement of Operations
six months ended June 30, 1996 (unaudited)
<S> <C>
Investment Income:
Interest $133,332
Total investment income 133,332
Expenses (Note 5):
Investment advisory fees 24,404
Transfer agent fees 4,241
Fund administration expense 3,029
Reports to shareholders 1,506
Registration fees and expenses 506
Professional fees 1,713
Custody fees 234
Trustee fees and expenses 639
Other expenses 721
Fees waived by Parnassus Investments (Note 5) (24,404)
Total expenses 12,589
Net Investment Income 120,743
Realized and Unrealized Gain (Loss)
on Investments:
Realized gain from security transactions:
Proceeds from sales 0
Cost of securities sold 0
Net realized gain 0
Unrealized appreciation (depreciation)
of investments:
Beginning of period 202,897
End of period June 30, 1996 61,656
Unrealized depreciation
during the year (141,241)
Net Realized and Unrealized
Loss on Investments (141,241)
Net Decrease in Net Assets Resulting
from Operations $ (20,498)
</TABLE>
<TABLE>
California Tax-Exempt Portfolio
- -------------------------------
<CAPTION>
Statements of Changes in Net Assets
six months ended June 30, 1996 (unaudited)
and year ended December 31, 1995
June 30, 1996 1995
------------- ----
<S> <C> <C>
From Operations:
Net investment income $ 120,743 $ 229,096
Net realized gain from
security transactions 0 7,122
Net unrealized appreciation
(depreciation) during
the period (141,241) 490,763
Increase (decrease) in
net assets derived from
operations (20,498) 726,981
Dividends to shareholders:
From net investment income (121,138) (230,274)
Increase in Net Assets from
Capital Share Transactions 841,352 84,751
Increase in Net Assets 699,716 581,458
Net Assets: Beginning of period 4,483,149 3,901,691
End of period
(including distributions in
excess of net investment
income of $3,371 in 1996
and $2,976 in 1995) $5,182,865 $4,483,149
</TABLE>
Notes To Financial Statements
1. Significant Accounting Policies
The Parnassus Income Fund (the Fund), organized on August 8, 1990 as a
Massachusetts Business Trust, is registered under the Investment Company Act of
1940 as a diversified, open-end investment management company comprised of three
separate portfolios offering three separate classes of shares. The Fund began
operations on June 1, 1992. The following is a summary of significant accounting
policies of the fund.
Securities valuation: The Fund's investments are valued each business day
by independent pricing services ("Services") approved by the Board of Trustees.
Investments are valued at the mean between the "bid" and "ask" prices where such
quotes are readily available and are representative of the actual market for
such securities. Other investments are carried at fair value as determined by
the Services based on methods which include consideration of (1) yields or
prices of securities of comparable quality, coupon, maturity and type (2)
indications as to values from dealers and (3) general market conditions.
Federal income taxes: The Fund intends to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its income to shareholders; therefore, no federal income tax
provision is required.
Security transactions: In accordance with industry practice, securities
transactions are accounted for on the date the securities are purchased or sold
(trade date). Realized gains and losses on securities transactions are
determined on the basis of first-in, first-out for both financial statement and
federal income tax purposes. Interest income, adjusted for amortization of
premium and, when appropriate, discount on investments, is earned from
settlement date and recognized on the accrual basis.
Dividends to shareholders: Distributions to shareholders are recorded on
the record date. The Balanced Portfolio pays income dividends quarterly and
capital gain dividends once a year, usually in December. The Fixed-Income and
California Tax-Exempt Portfolios pay income dividends monthly and capital gain
dividends annually.
Investment income and expenses: Dividend income is recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
2. Dividends To Shareholders
<TABLE>
Balanced Portfolio declared the following dividends during the six month
period ended June 30, 1996.
<CAPTION>
<S> <C> <C>
Dividend per share: $ 0.23 $ 0.206
Record date: 3/28/96 6/27/96
Ex-dividend date: 3/29/96 6/28/96
Payment date: 3/29/96 6/28/96
</TABLE>
<TABLE>
<CAPTION>
Fixed-Income Portfolio declared the following dividends during the six
month period ended June 30, 1996.
<S> <C> <C> <C> <C> <C> <C>
Dividend per share: $ 0.073 $ 0.076 $ 0.071 $ 0.078 $ 0.078 $ 0.077
Record date: 1/30/96 2/28/96 3/28/96 4/29/96 5/30/96 6/27/96
Ex-dividend date: 1/31/96 2/29/96 3/29/96 4/30/96 5/31/96 6/28/96
Payment date: 1/31/96 2/29/96 3/29/96 4/30/96 5/31/96 6/28/96
</TABLE>
<TABLE>
<CAPTION>
California Tax-Exempt Portfolio declared the following dividends during the
six month period ended June 30, 1996.
<S> <C> <C> <C> <C> <C> <C>
Dividend per share: $ 0.068 $ 0.068 $ 0.065 $ 0.064 $ 0.064 $ 0.063
Record date: 1/30/96 2/28/96 3/28/96 4/29/96 5/30/96 6/27/96
Ex-dividend date: 1/31/96 2/29/96 3/29/96 4/30/96 5/31/96 6/28/96
Payment date: 1/31/96 2/29/96 3/29/96 4/30/96 5/31/96 6/28/96
</TABLE>
3. Capital Stock
Balanced Portfolio: As of June 30, 1996, there were an unlimited number of
shares of no par value capital stock authorized and capital paid-in aggregated
$26,609,935. Transactions in capital stock (shares) were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 1995
--------------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold 258,084 $ 5,010,061 376,434 $ 6,807,100
Shares issued through dividend reinvestment 30,151 585,672 55,666 1,026,896
Shares repurchased (132,744) (2,579,848) (152,479) (2,682,202)
Net Increase 155,491 $ 3,015,885 279,621 $ 5,151,794
</TABLE>
Fixed-Income Portfolio: As of June 30, 1996, there were an unlimited number
of shares of no par value capital stock authorized and capital paid-in
aggregated $6,802,330. Transactions in capital stock (shares) were as follows:
<TABLE>
Six Months Ended Year Ended
June 30, 1996 1995
<CAPTION>
---------------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold 84,482 $ 1,290,518 127,963 $ 1,947,590
Shares issued through dividend reinvestment 9,279 141,345 16,561 247,954
Shares repurchased (71,350) (1,093,175) (55,674) (835,509)
Net Increase 22,411 $ 338,688 88,850 $ 1,360,035
</TABLE>
California Tax-Exempt Portfolio: As of June 30, 1996, there were an
unlimited number of shares of no par value capital stock authorized and capital
paid-in aggregated $5,157,965. Transactions in capital stock (shares) were as
follows:
<TABLE>
Six Months Ended Year Ended
<CAPTION>
June 30, 1996 1995
----------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold 62,483 $ 983,876 53,578 $ 824,076
Shares issued through dividend reinvestment 5,793 91,089 12,059 185,861
Shares repurchased (14,747) (233,613) (59,847) (925,186)
Net Increase 53,529 $ 841,352 5,790 $ 84,751
</TABLE>
4. Purchases and Sales of Securities
Balanced Portfolio: Purchases and sales of securities for the six months
ended June 30, 1996 were $17,688,490 and $8,758,666 respectively. For federal
income tax purposes, the aggregate cost of securities and unrealized
appreciation at June 30, 1996 were the same as for financial statement purposes.
Of the $2,079,885 of net unrealized appreciation at June 30, 1996, $2,294,098
related to appreciation of securities and $214,213 related to depreciation of
securities.
Fixed-Income Portfolio: Purchases and sales of securities for the six
months ended June 30, 1996 were $3,424,313 and $101,863 respectively. For
federal income tax purposes, the aggregate cost of securities and unrealized
depreciation at June 30, 1996 were the same as for financial statement purposes.
Of the $53,048 of net unrealized depreciation at June 30, 1996, $74,914 related
to appreciation of securities and $127,962 related to depreciation of
securities.
California Tax-Exempt Portfolio: Purchases and sales of securities for the
six months ended June 30, 1996 were $778,716 and $0 respectively. For federal
income tax purposes, the aggregate cost of securities and unrealized
appreciation at June 30, 1996 were the same as for financial statement purposes.
Of the $61,656 of net unrealized appreciation at June 30, 1996, $100,966 related
to appreciation of securities and $39,310 related to depreciation of securities.
5. Investment Advisory Agreement And Transactions With Affiliates
Under terms of an agreement which provides for furnishing investment
management and advice to the Fund, Parnassus Invest-ments is entitled to receive
fees computed monthly, based on the Fund's average daily net assets for the
month, at the following annual rates:
Balanced Portfolio - 0.75% of the first $30,000,000, 0.70% of the next
$70,000,000 and 0.65% of the amount above $100,000,000.
Fixed Income Portfolio and California Tax-Exempt Portfolio - 0.50% of the
first $200,000,000, 0.45% of the next $200,000,000 and 0.40% of the amount above
$400,000,000.
For the Balanced Portfolio, the investment advisory fee was waived for the
first four months of 1996. Beginning May 1, 1996, an investment advisory fee of
0.20% is charged to the Balanced Portfolio. Parnassus Investments received
advisory fees totaling $9,806 from the Balanced Portfolio for the six months
ended June 30, 1996. For the Fixed-Income Portfolio and California Tax-Exempt
Portfolio, Parnassus Investments waived the investment advisory fee.
Under terms of a separate agreement which provides for furnishing transfer
agent and fund administration services to the Fund, Parnassus Investments
received fees paid by the Fund totaling $81,239 for the six months ended June
30, 1996. The transfer agent fee is $2.30 per month per account and a fund
administration fee is $4,167 per month.
Parnassus Investments has agreed to reduce its investment advisory fee to
the extent necessary to limit total operating expenses to 1.25% of net assets
for the Balanced Portfolio and 1.00% of net assets for the Fixed-Income and
California Tax-Exempt Portfolios.
Jerome L. Dodson is the President of the Fund and is the sole stockholder
of Parnassus Investments.
For the six month period ended June 30, 1996, the Fund incurred legal fees
of $1,782 to Richard D. Silberman, counsel for the Fund. Mr. Silberman is also
the Secretary of the Fund.
6. Financial Highlights
Selected data for each share of capital stock outstanding, total returns
and ratios/supplemental data for the six months ended June 30, 1996 and years
ended December 31, 1995, 1994, 1993 and seven month period ended December 31,
1992 are as follows:
<TABLE>
<CAPTION>
June 30, 1996
Balanced Portfolio (unaudited) 1995 1994 1993 1992
- ------------------ ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $19.58 $15.70 $17.46 $16.17 $0.00
Income from investment operations:
Net investment income 0.42 0.88 0.80 1.20 0.17
Net realized and unrealized gain (loss) on securities 0.15 3.93 (1.75) 1.36 16.15
Total from investment operations 0.57 4.81 (0.95) 2.56 16.32
Distributions:
Dividends from net investment income (0.44) (0.90) (0.81) (1.21) (0.15)
Distributions from net realized gain on securities 0.00 (0.03) 0.00 (0.06) 0.00
Total distributions (0.44) (0.93) (0.81) (1.27) (0.15)
Net asset value at end of period $19.71 $19.58 $15.70 $17.46 $16.17
Total Return* 2.94% 31.13% (5.39%) 15.91% 8.58%
Ratios / Supplemental Data:
Ratio of expenses to average net assets (actual)** 0.74% 0.72% 0.83% 0.81% 0.00%
Decrease reflected in the above expense ratios due to
undertakings by the manager 1.36% 0.82% 0.88% 1.24% 1.14%
Ratio of net investment income to average net assets 4.29% 4.76% 5.15% 4.94% 2.44%
Portfolio turnover rate 35.90% 15.36% 6.50% 33.40% 23.54%
Net assets, end of period (000's) $30,028 $26,779 $17,087 $11,542 $ 3,241
</TABLE>
<TABLE>
June 30, 1996
<CAPTION>
Fixed-Income Portfolio (unaudited) 1995 1994 1993 1992
- ---------------------- ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $15.73 $13.79 $15.89 $15.33 $ 0.00
Income from investment operations:
Net investment income 0.45 0.95 1.02 1.03 0.36
Net realized and unrealized gain (loss) on securities (0.59) 1.95 (2.08) 0.57 15.32
Total from investment operations (0.14) 2.90 (1.06) 1.60 15.68
Distributions:
Dividends from net investment income (0.45) (0.96) (1.04) (1.03) (0.35)
Distributions from net realized gain on securities 0.00 0.00 0.00 (0.01) 0.00
Total distributions (0.45) (0.96) (1.04) (1.04) (0.35)
Net asset value at end of period $15.14 $15.73 $13.79 $15.89 $15.33
Total Return* (0.85%) 21.58% (6.76%) 10.59 2.87%
Ratios / Supplemental Data:
Ratio of expenses to average net assets (actual)** 0.88% 0.90% 0.81% 0.68% 0.00%
Decrease reflected in the above expense ratios due to
undertakings by the manager 1.00% 0.73% 0.98% 1.00% 1.18%
Ratio of net investment income to average net assets 5.89% 6.20% 7.00% 6.43% 3.20%
Portfolio turnover rate 2.20% 12.10% 5.20% 10.90% 15.29%
Net assets, end of period (000's) $6,677 $6,585 $4,545 $4,160 $2,093
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
California Tax-Exempt Portfolio (unaudited) 1995 1994 1993 1992
- ------------------------------- ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $16.06 $14.28 $16.10 $15.06 $ 0.00
Income from investment operations:
Net investment income 0.39 0.82 0.80 0.77 0.19
Net realized and unrealized gain (loss) on securities (0.48) 1.78 (1.81) 1.16 15.05
Total from investment operations (0.09) 2.60 (1.01) 1.93 15.24
Distributions:
Dividends from net investment income (0.39) (0.82) (0.81) (0.78) (0.18)
Distributions from net realized gain on securities 0.00 0.00 0.00 (0.11) 0.00
Total distributions (0.39) (0.82) (0.81) (0.89) (0.18)
Net asset value at end of period $15.58 $16.06 $14.28 $16.10 $15.06
Total Return* (0.55%) 18.60% (6.36%) 13.03% 1.70%
Ratios / Supplemental Data:
Ratio of expenses to average net assets (actual)** 0.52% 0.50% 0.39% 0.48% 0.00%
Decrease reflected in the above expense ratios due to
undertakings by the manager 1.00% 0.69% 0.87% 0.99% 2.10%
Ratio of net investment income to average net assets 4.95% 5.30% 5.37% 4.89% 2.10%
Portfolio turnover rate 0.00% 13.10% 12.00% 20.46% 0.00%
Net assets, end of period (000's) $5,183 $4,483 $3,902 $3,256 $1,061
<FN>
* 1992 ratios reflect returns for seven months of operation and are not
annualized.
** Parnassus Investments has agreed to a 1.25% limit on expenses for the
Balanced Portfolio and 1% limit for the Fixed-Income and California Tax-Exempt
Portfolios (See note 5 for details). Certain fees were waived for the years
ended December 31, 1995, 1994 and 1993. All expenses were waived for the
seven-month period ended December 31, 1992; therefore, the actual ratio of
expenses to average net assets for each portfolio was 0%.
</FN>
</TABLE>
Investment Adviser
Parnassus Investments
One Market-Steuart Tower #1600
San Francisco, California 94105
Legal Counsel
Richard D. Silberman, Esq.
465 California Street, #1020
San Francisco, California 94104
Auditors
Deloitte & Touche llp
50 Fremont Street
San Francisco, California 94105
Custodian
Union Bank of California
475 Sansome Street
San Francisco, California 94111
Distributor
Parnassus Investments
One Market-Steuart Tower #1600
San Francisco, California 94105
